Collective pension arrangements tend to yield higher risk-adjusted pension benets than individual plans due to intergenerational risk sharing and the lack of annuity conversion risk. These benfits pose the implicit assumption that the pension fund has an innite horizon, while we observe that many pension funds discontinue. Using case studies of six discontinued pension funds, in combination with a simulation model, this paper analyses the occurrence and impact of pension fund discontinuity.
Although discontinuity tends to increase the volatility of pension benets, median benets in most institutional settings increase after discontinuing the fund. We nd that both the occurrence and impact of discontinuity depends strongly on the institutional setting of the pension fund. Stricter regulations, such as more conservative discount rates, increase the financial stability of the pension fund; however, they may reduce membership support through lower replacement rates. This poses a trade-off in the design of the pension system.
|Place of Publication
|Number of pages
|Published - 2017
|ERIM Research Series